Mushtak Parker Saudi Gazette LONDON – If things go to plan, the small-and-medium-sized enterprises (SME) sector in Malaysia is set to receive a major boost over the next eight years following the recent unveiling of the country's ambitious "Small Medium Enterprise Master Plan 2012-2020: Catalyzing Growth and Income (SME Masterplan 2012-2020)". According to some experts, the Master Plan which was launched last week by Malaysian Prime Minister Mohd Najib Tun Razak in Kuala Lumpur, may well become the SME Policy Model for other developing countries to emulate. The Master Plan incorporates some of the most ambitious targets for the SME sector set by any country over the next eight years, and includes both conventional and Shariah-compliant financing schemes. Perhaps equally importantly, Premier Mohd Najib sees the new Master Plan as the "game changer" to accelerate the growth of SMEs to help achieve the Malaysian goal of high-income nation status by 2020. "Unless we introduce a 'game changer', we will be caught in a middle-income trap, whereby we are no longer as competitive on cost as some countries. Going forward, the government would adopt a differentiated approach to accelerate the growth of SMEs and to provide the impetus for growth led by the private sector," stressed the Prime Minister at the launch. The SME Master Plan in simple terms aims to create the next generation of SMEs - a new breed of enterprises that are globally competitive and make a significant contribution to exports and GDP. The targets of the SME Master Plan 2012-2020 are indeed a tall order and fit in with the overall objectives of Wawasan 2020 (Vision 2020) introduced by then prime minister Mahathir Muhammed and continued by his successors. The aim of Vision 2020 is to transform Malaysia into a fully industrialized country by 2020. The main targets for the SME sector under the new master plan include increasing the contribution of the sector to GDP from the current 32 percent to 41 percent in 2020; increasing the sector's contribution to employment from 59 percent currently to 62 percent by 2020; and increasing its share of exports from 19 percent in 2010 to 25 percent in 2020. The SME Master Plan comes under the aegis of the National SME Development Council, of which Prime Minister Mohd Najib is also the Chairman. According to the Council, "SMEs are critical to the economic transformation as they form the domestic source of growth and bedrock of private sector activity. SMEs are also important in stimulating innovation and act as stabilizers of growth during an economic slowdown." According to the Master Plan, priority would be given to nurture domestic SMEs, from the start-up stage right through facilitating expansion to catalyzing high potential firms that can graduate to become homegrown champions which can compete in the regional and global markets. At the same time, the bottom 40 percent of the income pyramid which include micro enterprises would be brought into the economic mainstream so that they can benefit from Government assistance and the economic transformation process. The Master Plan, however, warns that "the transition will see a change in the economic structure as the services sector and more high value-added knowledge-intensive activities gains prominence. SMEs would require a change in mindset in gearing for this transition." A Study conducted for the Master Plan revealed that SMEs in Malaysia are constrained by low productivity and relatively low business formation. SME productivity per worker, according to the study, averaged RM47,000 which is about one-third the productivity of large domestic enterprises. SMEs in the United States and Singapore are seven and four times more productive respectively than Malaysian SMEs. The Master Plan highlights six factors that influence the performance and future development of SMEs. These include innovation and technology adoption; human capital development; access to financing; greater market access including exports; enabling legal and regulatory environment; and industry infrastructure. Access to finance is a major challenge for any SME policy. To boost this, the Malaysian government has introduced additional SME financing schemes which are also Shariah-compliant. For instance, the government has recently launched a Shariah-compliant SME Financing Scheme (SMEFS) (Skim Pembiayaan PKS Patuh Shariah) totaling RM2 billion. Some 13 Malaysian Islamic banks have signed up to participate in the scheme which started operating on 1 July 2012 and which will run till the end of 2013. Kuala Lumpur has even agreed to pay 2 per cent of the profit rate charged on the financing provided by participating Islamic banks. The government has also launched a RM500 million Shariah-compliant Commercialization Innovation Fund (CIF) which will finance SMEs whose products have undergone market commercialization verification process. This fund is available at selected Islamic banks with the government similarly financing 2 percent of the profit rate. According to the SME Master Plan, the services sector will be the future growth driver accounting for 65 percent share of GDP by 2020. As such, it urges "SMEs must build up capacity and capability to face the challenges from liberalization and at the same time to leverage on emerging opportunities. SMEs are also poised to benefit from the National Key Economic Areas (NKEAs) announced by the Government. About 60 percent of the Entry Point Projects (EPPs) earmarked are expected to benefit SMEs in all sectors. The challenge is for SMEs to migrate from the current backend of the value chain to the higher end of the value chain."
